Members of the transforming growth factor-␤ (TGF-␤) family transmit signals from membrane to nucleus via intracellular proteins known as Smads. A subclass of Smad proteins has recently been identified that antagonize, rather than transduce, TGF-␤ family signals. Smad7, for example, binds to and inhibits signaling downstream of TGF-␤ receptors. Here we report that the C-terminal MAD homology domain of murine Smad7 (mSmad7) is sufficient for both of these activities. In addition, we show that

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... d7 interacts with activated bone morphogenetic protein (BMP) type I receptors (BMPR-Is), inhibits BMPR-I-mediated Smad phosphorylation, and phenocopies the effect of known BMP antagonists when overexpressed in ventral cells of Xenopus embryos. Xenopus Smad7 (XSmad7, previously termed Smad8) and mSmad7 are nearly identical within their bioactive C-domain, but have quite distinct Ndomains. We found that XSmad7, similar to mSmad7, interacted with BMP and TGF-␤ type I receptors and inhibited receptor-mediated phosphorylation of downstream signal-transducing Smads. However, XSmad7 is a less efficient inhibitor of T␤R-I-mediated responses in mammalian cells than is mSmad7. Furthermore, overexpression of XSmad7 in Xenopus embryos produces patterning defects that are not observed following overexpression of mSmad7, suggesting that mSmad7 and XSmad7 may preferentially target distinct signaling pathways. Our results are consistent with the possibility that the C-domain of antagonistic Smads is an effector domain whereas the N-domain may confer specificity for distinct signaling pathways.